Introducing more competition into local phone networks is essential, believes the European Commission, to bring down internet access costs and make Europe internationally competitive in ecommerce.
European telecoms ministers will meet on 4 and 5 April to ensure that all member states' telecoms regulators take tough action to implement the so-called local loop unbundling. But the European Commission says it is not, as yet, worried by the pace of change.
"It is too early to say," said Per Haugaard, spokesman for Erkki Liikanen, the information society commissioner. "We are happy with the rapid adoption of the regulations - which were passed with record speed.
"As for implementation, it is still early in the day. We are carrying out a survey of all the member states and will discuss this at the meeting of telecoms ministers of member states."
Mr Haugaard stresses that the directive that requires local loop unbundling has immediate force of law throughout the European Union.
The Commission recognises that there are real challenges in seeing local loop unbundling become a reality. "There may be technical difficulties on the ground," said Haugaard, "but if this is used as an excuse to keep out new entrants it will be looked at by the Commission if the situation persists."
Rapid progress of legislation
It was only in April last year that the Commission published its recommendation that all fixed line incumbent operators should offer unbundled local loops. Within three months this became the draft regulation on local loop unbundling. And by January this year it was law in every member country.
Under the regulation and member states' legislation, every company with significant market power must offer local loop unbundling, sub-loop unbundling and line sharing. All incumbent operators - such as BT in the UK and Deutsche Telekom in Germany - must set out contract terms and prices, meet reasonable requests and make arrangements that are cost-orientated.
The significance of the unbundling is that it should introduce competition to all parts of the European telecoms system. Up to now, the opening up of the system has focused on mobiles, international and trunk calls, leaving the old state companies with something like monopolies for local calls - which most internet connections are routed through.
Slower progress where it matters
The strong impression is that Germany is the most advanced in implementing unbundling, followed by The Netherlands. This view was put forward strongly by some telecoms companies presenting evidence to the House of Commons Trade & Industry Select Committee, which reported in March.
But Cable & Wireless' Emma Gilthorpe told the Committee that Germany is often seen as "having bundling on tap ready for people to walk in and take advantage of. The reality is far from that." She added that Deutsche Telekom "is equal to BT in its tactical obfuscation of the issue".
Of 40 million lines in Germany, still only about 100,000 are in the hands of Deutsche Telekom's competitors, according to the European Competitive Telecommunications Association.
Euro MP Nick Clegg, Liberal Democrat member for the East Midlands, steered the legislation through the European Parliament. "It's a tiny bit too early to judge still how the local loop unbundling was going in member countries. The Commission has only just had responses from the regulatory bodies, including Oftel [in the UK]," he explained.
"It is clear the European regulation caught everyone on the hop, including BT, Oftel and all the telecoms providers and regulators in Europe. Within a few weeks - by early summer - I would be wanting to say to the Commission in Brussels: 'Here are the laggards and we should be rattling the sabre'. But this legislation has not even been on the statute book for 12 weeks," he said.
"My sense is that this has had a dramatic effect across Europe. Germany has been in the lead for some time, in terms of numbers of lines unbundling. But not in line sharing or the shared access of sub-loops, which is very important for high density services. Deutsche Telekom lobbied against the regulations more than anybody else. Belgium has been signally bad. Britain has not been the best or the worst," he added.
Procrastination in the UK
The process of unbundling in the UK has been hampered by the number of telecoms companies that had expressed interest in competing in the local calls market but have now withdrawn.
This does not greatly worry Oftel, the regulator, nor does it prevent the Commission's directive from being implemented, explained an Oftel spokeswoman. "We have still got companies on board, although some have dropped out," she said.
There may not even be competition in local phone markets across all of the UK by the end of the year. In some areas, new entrant competitors to BT are simply not interested in competing. "Not every loop will be unbundled," explained Oftel. Instead, Oftel is concentrating on facilitating the building of new infrastructure for those exchanges where competition does exist.
"We hope that building work will be underway in some areas before Easter," said the spokeswoman. "When the services will be rolled out, we can't really say." By initiating this process where there is demand from BT's competitors, the UK is already meeting the requirements of the Commission's directive, argues Oftel.
But Oftel's performance has been severely criticised by the House of Commons' powerful Select Committee on Trade and Industry. "The situation is in danger of becoming farcical," said the MPs.
David Edmonds, director general of Oftel, responded: "I think there was a series of examples during those months in the early part of the summer [of 2000] when BT were deliberately holding back on information, when BT were not progressing the roll-out of local loop unbundling as fast we would have wished." This led to what Edmonds described as "almost trench warfare" between the two bodies.
Observers were willing to blame Oftel as much as BT. "At best, Oftel is revealed as an organisation basically powerless to push BT into opening up the local loop," said the Computing Services and Software Association. "At worst, Oftel will be cited in history as a stunning example of the captured regulator."
Looking to the future
New entrants will be able to take legal action if they feel excluded from local loops. Any new entrant to the telecoms market which feels it has restricted entry into local markets will therefore be able to enforce the legislation through the courts from the beginning of next year.
The Commission is willing to take its own enforcement action to speed up full access. But Mr Haugaard doubts that this will be necessary. "This is top of the agenda of all member states," he said.
Clegg believes that in practice the Commission may need to use its powers, and not just rely on new entrants taking legal action or the national regulators proving effective. "Its a double whammy," he explained. "The Commission will need the co-operation of new entrants to know whether the regulations have been breached."
"The regulation is domestic legislation, now. New entrants can have recourse to domestic courts. But where governments or the regulators have been remiss it is up to the Commission to take action," he added.
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